Q2 2025 M/I Homes Inc Earnings Call

Operator: Welcome to the M-I Homes Second Quarter Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you need assistance, please press star zero for the operator.

Operator: This call is being recorded on Wednesday, June 23, 2025.

Phillip Creek: I will now turn the conference over to Phil Creek. Please go ahead. Thank you.

Good morning, ladies and gentlemen, and welcome to the me home, second quarter earnings conference call at this time online. So, now listen, only mode. Following the presentation, we will conduct question and answer session. If at any time during this call, you need assistance. Please press star zero for the operator. This call is being recorded on Wednesday, 23rd 2025, I will now let you turn the conference over to Phil Creek. Please go ahead.

Phillip Creek: Joining me on the call today is Bob Schottenstein, our CEO and president, and Derek Klutch, president of our mortgage company. First, to address Regulation Fair Disclosure, we encourage you to ask any questions regarding issues that you consider material during this call because we are prohibited from discussing significant non-public items with you directly.

Phillip Creek: And as to forward-looking statements, I want to remind everyone that the cautionary language about forward-looking statements contained in today's press release also applies to any comments made during this call. Also be advised that the company undertakes no obligation to update any forward-looking statements made during this call.

Public items with you directly.

Speaker Change: And as to forward-looking statements want to remind everyone that the cautionary language about forward-looking statements contained in. Today's press release also applies to any comments made during this call.

Robert Schottenstein: With that, I'll turn it over to Bob. Thanks, Phil. Good morning, and thank you for joining us. As outlined in today's release, M-I Homes had a very solid second quarter, highlighted by record second quarter revenue, record second quarter homes delivered, and continued strong returns, including 25% gross margins, 14% pre-tax income, and a 17% return on equity. We were very pleased to post these results given the challenging macroeconomic backdrop. When we last spoke on our first quarter earnings call, we commented on the demand challenges we faced during the last half of 2024, as well as during the first quarter of this year.

Speaker Change: Also be advised that the company undertakes. No obligation to update any forward-looking statements made during this call with that. I'll turn it over to Bob. Thanks Phil. Good morning and thank you for joining us.

Bob: As outlined in today's release, am I homes had a very solid second quarter highlighted by record, second quarter, Revenue record, second quarter, homes delivered, and Khan continued strong returns including 25% gross margins 14% pre-tax income and a 17% return on equity.

Bob: We were very pleased to post these results. Given the challenging macro macroeconomic backdrop.

Robert Schottenstein: Little has changed as we continue to face challenging and choppy conditions. primarily due to higher interest rates, which has contributed to uncertainty and impacted consumer confidence. Throughout this year, we have strategically and effectively used mortgage rate buy-downs to drive traffic and incent sales. Though such buy-downs have impacted profitability and margins, they have been most successful as we strive to balance price and pace across our 234 communities. Though our second quarter new contracts were down 8% from a year ago, we were pleased to record a monthly sale pace of three homes per community. And moreover, we were pleased to see a sequential improvement in new contracts from May to June.

Bob: When we last spoke on our first quarter earnings call, we commented on the demand challenges, we faced during the last half of 2024 as well as during the first quarter of this year.

Bob: Little has changed as we continue to face challenging and choppy conditions primarily due to higher interest rates, which has contributed to uncertainty and impacted consumer confidence.

Bob: Throughout this year we have strategically and effectively used mortgage rate, buy Downs to drive traffic and incent sales.

Bob: No, such buy Downs, have impacted profitability and margins. They have been most successful as we strive to balance price and pay across our 234 communities.

Bob: Our second quarter of new contracts were down. 8% from a year ago, we were pleased to record a monthly sale, pace of 3 homes per community. And moreover, we were pleased to see a sequential Improvement in new contracts from May to June.

Robert Schottenstein: We have repeatedly said that long-term fundamentals of our industry are sound. and that housing will benefit greatly from the current undersupply of homes and growing household formations, particularly in our market. There's little doubt that many potential buyers are sitting on the sidelines waiting for a better rate environment and an improvement in consumer sentiment. As we go forward, we will continue to use rate buy-downs to drive traffic as we manage our operations to meet the demands of the current environment. We feel very good about our business and believe that we can continue to drive performance and produce solid returns and profitability.

Bob: We have repeatedly said that long-term fundamentals of our industry are sound.

Bob: And that housing will benefit greatly from the current under supply of homes and growing household. Formations particularly in our markets

Bob: There's little doubt that many potential buyers are sitting on the sidelines, waiting for a better rate environment and an improvement in consumer sentiment.

As we go forward, we will continue to use rate by Downs to drive traffic as we manage our operations to meet the demands of the current environment.

Bob: We feel very good about our business and believe that we can continue to drive performance and produce solid returns and profitability.

Robert Schottenstein: In the second quarter we closed a record 2,348 homes, a 6% increase compared to a year ago. Our second quarter total revenue, also a record, increased by 5% to $1.2 billion, and pre-tax income decreased 18% to $160.1 million, largely due to the decline in gross margins to 25%, but still a very good 14% pre-tax income return. We continue to see quality buyers in terms of creditworthiness with strong average credit scores of 746 and an average down payment of 17%. We ended the second quarter with a record 234 communities and remain on track to grow our community count in the balance of 2025.

Bob: In the second quarter, we closed a record 2,348 homes, a 6% increase compared to a year ago.

Our second quarter, total revenue also record increased by 5% to 1.2 billion dollars and pre-tax income. Decreased 18% to 160.1 million. Largely due to the decline in Gross margins to 25%, but still a very good 14% pre-tax income return.

We continue to see quality buyers in terms of Readiness, creditworthiness with strong average, credit scores of 746 and an average down payment of 17%.

Robert Schottenstein: We believe our 2025 average community count will increase by about 5% from 2024. Our division income contributions in the second quarter were led by Columbus, Dallas, Orlando, Chicago, Minneapolis, and Charlotte. New contracts for the second quarter in our northern region decreased by 13 percent, while new contracts in our southern region decreased 4 percent. Our deliveries in the southern region increased by 8%. Deliveries in the northern region increased 2% from a year ago. 59% of our deliveries come out of the southern region, the other 41% out of the northern region. We have an excellent land position.

Bob: We ended the second quarter with a record 234 communities and remain on track to grow our community count and the balance of 2025.

We believe our 2025 average Community count will increase by about 5% from 2024.

Bob: Our division income contributions in the second quarter were led by Columbus Dallas, or Lando, Chicago Minneapolis and Charlotte.

Bob: New contracts for the second quarter in our Northern Region. Decreased by 13%, while new contracts in our southern region, decreased 4%,

Bob: Our deliveries in the southern region, increased by 8% deliveries in the northern region increased 2% from a year ago.

Bob: 59% of our deliveries come out of the southern region. The other 41% out of the northern region,

Robert Schottenstein: Our owned and controlled lot position in the southern region increased by 7% compared to a year ago and decreased by 7% versus last year in the northern region. 31% of our owned and controlled lots are in the north, the other 69% in the south. Company-wide, we own approximately 24,500 lots, which is slightly less than a three-year supply. In addition, we control via option contracts approximately 26,000 additional lots resulting in a total of 50,500 owned and controlled lots equating to about a 5 to 6 year supply. Our balance sheet is the strongest in company history. We ended the second quarter with an all-time record $3.1 billion of equity, equating to book value per share of $117, which is up 17% from a year ago.

Bob: we have an excellent land position.

Bob: Our owned and controlled lot position in the southern region increased by 7% compared to a year ago and D decreased by 7% versus last year in the northern region.

Bob: 31% of our owned and controlled. Lots, are in the north, the other 69% in the south

Bob: Companywide we owned approximately 24,500 Lots, which is slightly less than a 3 year Supply.

Bob: We control via option contracts. Approximately 26,000 additional, Lots, resulting in a total of 50,500 owned and controlled lots. Equating to about a 5 to 6 year Supply

Robert Schottenstein: We also ended the quarter with zero borrowings under our $650 million unsecured revolving credit facility and $800 million of cash. This resulted in a debt-to-capital ratio of 18%, down from 20% a year ago, and a net debt-to-capital ratio of negative 3%.

Bob: Our balance sheet is the strongest in company history. We ended the second quarter with an all-time record, 3.1 billion dollars of equity, equating to book value per share of 117 dollars which is up 17% from a year ago.

Bob: We also ended the quarter with zero borrowings under our 650 million unsecured revolving credit facility and 800 million dollars of cash.

Robert Schottenstein: As I conclude, let me just state that we remain very optimistic about our business. Given the strength of our balance sheet, the quality of our communities, and the tremendous land position that we have, we are well-positioned as we begin the third quarter of 2025.

Bob: This resulted in a debt to Capital ratio of 18% down from 20% a year ago, and the net debt to Capital ratio of negative -3%,

Bob: As I conclude, let me just state that we remain very optimistic about our business.

Phillip Creek: And with that, I'll turn it over to Phil. Thanks, Bob. Our new contracts were down 8% for the quarter when compared to last year. They were down 12% in April, down 12% in May, and up 1% in June. And our cancellation rate for the quarter was 13%. 51% of our second quarter sales were to first-time buyers, and 73% were inventory homes. Our community count was 234 at the end of the second quarter, compared to 211 a year ago. And the breakdown by region is 99 in the northern region and 135 in the southern region. During the quarter, we opened 23 new communities while closing 15.

Given the strength of our balance sheet, the quality of our communities and the tremendous land position that we have. We are well positioned as we begin the third quarter of 2025 and with that, I'll turn it over to Phil. Thanks Bob. Our new contracts were down 8% for the quarter. When compared to last year, they were down, 12% in April down, 12%, in May and up 1% in June and our cancellation rate for the quarter was 13%.

Speaker Change: 51% of our second quarter sales. Were the first time buyers in 73% were inventory homes.

Phil: Our community count was 234 at the end of the second quarter compared to 211 a year ago, and the breakdown by region is 99 in the northern region and 1 135 in the southern region.

Phillip Creek: We currently estimate that our average 2025 community count will be about 5% higher than last year. We delivered 2,348 homes in the second quarter, delivering 82% of our backlog, and 36% of our second quarter deliveries came from inventory homes that were sold and delivered in the quarter. As of June 30th, we had 5,100 homes in the field versus 5,000 homes in the field a year ago. Our revenue increased 5% in the second quarter. Our average closing price for the second quarter was $479,000, a 1% decrease when compared to last year's average closing price of $482,000.

Phil: During the quarter. We opened 23 new communities while closing 15, we currently estimate that. Our average 2025 Community count will be about 5% higher than last year.

Phil: We delivered 2,348 homes in the second quarter, delivering 82% of our backlog in 36% of our second quarter. Deliveries came from inventory homes. That were sold and delivered in the quarter.

Phil: As of June 30th, we had 5,100 homes in the field versus 5,000 homes in the field. A year ago.

Phil: Our Revenue, increased 5% in the second quarter.

Phillip Creek: Our second quarter gross margin was 24.7, down 320 basis points year-over-year, and down 120 points from our first quarter of 2025. Our cycle time slightly improved in the second quarter compared to last year, and our second quarter SG&A expenses were 11.3% of revenue compared to 11.0 a year ago. Our second quarter expenses increased 7% versus a year ago, and these increased costs were primarily due to our increased community count and additional headcount. Interest income, net of interest expense for the quarter was $4.4 million. Our interest incurred was $8.7 million. We are pleased with our returns for the second quarter given the challenges facing our industry.

Phil: Our average closing price for the second quarter was 479,000 a 1% decrease. When compared to last year's average closing price of 482,000.

Phil: Our second quarter, gross margin was 24.7.

Phil: Down 320 basis, points year-over-year and down 120 points from our first quarter of 2025.

Phil: Our cycle time slightly improved in the second quarter compared to last year and our second quarter, sgna expenses were 11.3% of Revenue compared to 11.07% versus a year ago.

Phil: And these increased costs were primarily due to our increased Community count and additional headcount interest income net of interest expense. For the quarter was 4.4 million. Our interest incurred was 8.7 million.

Phillip Creek: Our pre-tax income was 14% and our return on equity was 17%. During the quarter, we generated $169 million of DBITDA compared to $200 million in last year's second quarter, and our effective tax rate was $24.3 in the second quarter compared to $24.4 a year ago. Our earnings per diluted share for the quarter decreased to $4.42 per share from $5.12 per share last year, down 14%, and our book value per share is now $117, a $17 per share increase from a year ago.

We are pleased with our returns for the second quarter, given the challenges facing our industry. Our pre-tax income was 14% and our return on Equity was 17%.

Derek Klutch: Now Derek Klutch will address our mortgage company results. Thanks, Phil. Our mortgage and title operations achieved pre-tax income of $14.5 million, a slight increase from $14.4 million in 2024's second quarter. Revenue increased 2% from last year to a second quarter record $31.5 million due to higher margins on loans sold, a higher average loan amount, and an increase in loans originated. Average loan-to-value on our first mortgages for the second quarter was 83%. compared to 81% in 2024's second quarter. We continue to see an increase in the use of government finance. as 51% of the loans closed in the quarter were conventional and 49% FHA or VA.

During the quarter, we generated 169 million of ebit do compared to 200 million in last year's second quarter and our effective tax rate was 24.3 in the second quarter compared to 24.4. A year ago our earnings per diluted share for the quarter decreased to 442 per share from 512 per share last year down 14% and our book value per share is now 1117 a $17 per share increase from a year ago

Speaker Change: Now, Derek clutch will address our mortgage company results.

Derek: Thanks, Phil.

Our mortgage and title operations, achieved pre-tax income of 14.5, million, a slight increase from 14.4 million in 2024. Second quarter.

Derek: Revenue increased 2% from last year to a second quarter record 31.5 million. Due to higher margins on loan, sold a higher average loan amount and an increase in loans originated.

Derek: Average loan to value on our first mortgages for the second quarter was 83%.

Derek: Compared to 81% in 2024, second quarter.

Derek Klutch: compared to 69% and 31% respectively for 2024's second quarter. Our average mortgage amount increased to $403,000 in 2025 second quarter compared to $395,000 last year. Loans originated increased to $1,865, which was up 15% from last year, while the volume of loans sold increased by 10%. Finally, our mortgage operation captured 92% of our business in the second quarter, up from 87% last year.

Derek: And 49%, FHA or VA?

Derek: Compared to 69% and 31% respectively for 2024 second quarter.

Derek: Our average mortgage amount increased to 403,000 in 2025, second quarter compared to 395,000 last year.

Derek: Loans originated increased to 1865, which was up 15% from last year while the volume of loans sold increased by 10%.

Phillip Creek: Now I'll turn the call back over to Phil. Thanks, Derek. As to the balance sheet, we ended the second quarter with a cash balance of $800 million and no borrowings under our unsecured revolving credit facility. We continue to have one of the lowest debt levels of the public home builders and are well positioned with our maturities. Our bank line matures in late 2026 and our public debt matures in 2028 and 2030 and has interest rates below 5%. Our unsold land investment at June 30, 2025 is $1.7 billion compared to $1.5 billion a year ago. June 30, we had $894 million of raw land and land under development and $803 million of finished unsold lot.

Derek: Finally, our mortgage operation captured 92% of our business in the second quarter up from 87% last year.

Derek: Now I'll turn the call back over to Phil. Thanks Derek this is a balance sheet. We ended the second quarter with a cash balance of 800 million and no borrowings under our unsecured revolving credit facility. We continue to have 1 of the lowest debt levels of the public home builders and are, well, positioned with our maturities, our bank line matures in late 2026, and our public debt matures in 28 and 30 and as interest rates below 5%,

Derek: Our unsoed land investment is June 30th. 25th is 1.7 billion compared to 1.4 1.5 billion a year ago.

Phillip Creek: During 2025's second quarter, we spent $102 million on land purchases and $139 million on land development for a total of $241 million. June 30th, we own 24,500 lots. controlled 50,500 lots. And at the end of the quarter, we had 586 completed inventory homes and 2,726 total inventory. And of the total inventory, 1,011 are in the northern region and 1,715 are in the southern region. June 30, 2024, we had 372 completed inventory homes and 2,150 total inventory. We have spent $50 million in the second quarter repurchasing our stock, and have $150 million remaining under our current board authorization.

Derek: And in June 30th, we had 894 million of raw land land under development and 803 million a finish on sold Lots.

During 2025 second quarter, we spent 102 million on land purchases and 139 million on Land Development, for a total of 241 million.

June 30th. We own 24,500 lots and controlled 50,500 lots. And at the end of the quarter, we had 586 completed inventory, homes in 2726, total inventory homes, and of the total inventory. 1,011 are in the northern region and 1,715 are in the southern region.

Derek: June 30th 2024. We had 372 completed inventory, homes in 2150, total inventory homes.

Phillip Creek: Since the start of 2022, we have repurchased 14% of our outstanding shares.

Phillip Creek: This completes our presentation. We will now open the call for any questions or comments. Thank you.

Derek: We spent 50 million in the second quarter repurchasing, our stock and have 150 million remaining under our current board authorization. Since the start of 2022, we have repurchased 14% of our outstanding shares,

Derek: This completes our presentation when I open the call for any questions or comments.

Operator: Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the 1 on your touchtone phone. You will hear a prompt that your hand has been raised. If you wish to confirm the polling process, please press the star followed by the 2. And if you are using a speakerphone, please lift the handset before pressing any key.

Speaker Change: Thank you, ladies and gentlemen, we will now begin the question and answer session. Should you have a question please? Press the star followed by the 1 on your touchtone phone. You will hear a prompt that your hand has been raised. If you wish to claim from the polling process, please press the star followed by the 2. And if you are using a speaker-phone, please lift the handset, before pressing any keys.

Alan Ratner: The first question comes from Alan Ratner at Selman & Associates. Please go ahead. Hey, Bob. Hey, Phil. Good morning. Nice job in a tough environment. Congratulations. Great. Thanks, Al. I'm good to hear from you. Thank you. Nice to hear from you guys as well.

Alan Ratner: The first question comes from Alan Ratner at Selman and Associates. Please go ahead.

Speaker Change: Hey Bob hey Phil. Good morning. Uh, nice job in a, in a tough environment. Congratulations. I think Alan good to hear from you. Thank you.

Robert Schottenstein: Bob, I guess first question, just kind of more bigger picture, was hoping you could just provide a little bit more commentary across your footprint and kind of differentiation and trends you're seeing by price point, by geography, you know, which ones are the relative winners and losers in the current market? You know, uh, yeah, I'll try to do that. I think that, um... There's just a lot of volatility. week-to-week within inside the month. I think I saw another builder make a comment that, you know, one week is good and the next week is actually not so good.

Nice to hear from you guys as well. Um Bob I guess first question just kind of more bigger picture was hoping you could just provide a little bit more commentary across your footprint and kind of differentiation and Trends. You're seeing by Price Point by geography, you know which ones are the relative winners and and losers in the current market.

You know, uh yeah. I'll try to do that. I I think that um,

Speaker Change: uh,

Speaker Change: there's just a lot of volatility.

Speaker Change: Week to week within in within inside the months.

Speaker Change: Um I think I saw another Builder. Make a comment that, you know, 1 week is good and the next week is is actually not so good. And

Robert Schottenstein: It almost looks like a heart rate monitor. And that's what we've experienced. Having said that, I think, in balance, our Midwest markets... have outperformed the Carolinas. Slightly, although I think the Caroliners are still quite good.

Speaker Change: It's, it's it, you know, it almost looks like a, a heart rate monitor. Um,

Speaker Change: And that's what we've experienced. Having said that, um, I think in Balance our Midwest markets

Robert Schottenstein: We're sort of still just getting started in Nashville, so I'm not going to make any comments about that because I don't feel that. Meaningful enough in terms of our performance. Florida's a bit of a mixed bag. Orlando, for us, has held up significantly better than Tampa. Sarasota and Tampa are both a little soft, although I think as the quarter progressed, conditions in Tampa got a little bit better, and we were very pleased to see that. We've had a lot of delays in bringing communities online in Sarasota, and those delays have been more of an impact, I think, on our performance in that particular market than maybe the macro environment.

Speaker Change: Have outperformed, um, the Carolinas uh, uh, slightly uh, although I think the Carolinas are still quite good. Uh, we're sort of still just getting started in Nashville. So I'm not going to make any comments about that because I don't feel that that they're meaningful enough in terms of our of our performance.

Robert Schottenstein: And then Fort Myers-Naples, we're off to a really good start, but it's still just in its very, very early stages. Texas, you know, Dallas is clearly softer than it was a year ago when it was one of the strongest, if not the strongest, housing markets in the country. So Dallas has softened a bit. it's by no means horrible, but it's not nearly what it once was. Houston is a little softer too, maybe not quite as soft as Dallas, and I think Austin is crawling its way back. San Antonio is sort of somewhere in the middle there, you know, with...

Speaker Change: And maybe the macro environment and then Fort Meyers Naples will have to a really good start, but it's still just in its very, very early stages.

Speaker Change: Uh, Texas. Uh, you know, Dallas is clearly softer than it was a year ago when it was 1 of the strongest, if not the strongest housing markets in the country. Uh, so Dallas has softened a bit. Um, it's it's by no means horrible, but it's not nearly What It Wants was. Houston is a little softer too, maybe not quite as soft as as Dallas.

Robert Schottenstein: very, very sensitive to interest rates in terms of the buyer profile there. So in balance, I'd say across all 17 of our markets, I'm glad we're in every single one of them. Columbus, Indianapolis, Chicago, Minneapolis, I think are performing at a pretty good level right now. So is Charlotte.

Speaker Change: Um, and I think Austin is crawling its way back. Um, San Antonio, uh, is is sort of somewhere in the middle there, you know, with uh, very, very, uh, sensitive to, uh, interest rates in terms of the buyer profile there,

Speaker Change: So in Balance, you know, I'd say across all 17 of our markets. I'm glad we're in every single 1 of them.

Robert Schottenstein: Raleigh, we're in a bit of a transition with communities coming on. Very, very bullish about all these places. Glad that if we weren't in these markets, we would go to them. And I think, you know, Florida's in a bit of a reset on particularly the West Coast from our point of view. But. I'm really bullish about Florida. I'm not ready to move there personally, but I'm very bullish because I think a whole lot of people are. And I don't think Florida's going anywhere. I know that weather and hurricanes and those sort of things cause issues.

Speaker Change: Um, you know, Columbus Indianapolis Indianapolis Chicago Minneapolis, you know, I think are performing at a pretty good level right now. So is Charlotte, uh, Raleigh. We're in a bit of a transition with communities coming on very, very bullish about all these places, uh, glad that if we weren't in, in these markets, we would go to them.

Speaker Change: And I think, uh, you know, Florida's in a bit of a reset on particularly the West Coast from our, from our point of view.

Robert Schottenstein: from time to time, but... And I remain very bullish about tax. I think there, you know, some of the margins that we were posting, and I suspect others were as well, in Dallas and Houston, not sure how sustainable they were long-term, but they're still excellent, excellent housing. 15% of the new homes sold in the United States, I think, are sold in the state of Texas. I suspect that will continue. So we love where we are. We think we've got a lot of opportunity. I'm glad that we're not just one place or the other.

Speaker Change: But uh, I'm really bullish about Florida. Um, I'm not ready to move there personally, but but I'm very bullish because I think a whole lot of people are. And I think, I don't think Florida's going anywhere. Um, I know that whether and hurricanes and those sort of things cause issues from time to time. But um, and I'm I remain. Very bullish about Texas too. Um, I think there, you know, some of the margins that we were posting, and I suspect others were as well, in Dallas and Houston, not sure how sustainable they were long term, but they're still excellent. Excellent. Housing markets. What 15% of the new homes sold in the United States? I think are sold in the state of Texas. I I suspect that will continue

Speaker Change: so we love where we are. Um, we think we've got a lot of opportunity. Um, I'm glad that we're not just 1 place of the other.

Robert Schottenstein: We still have no interest in going any further west than we are. You didn't ask that, but I'll offer that up. Because we think we can grow a whole lot within the markets that we're in. And we have a leadership position in over half of our markets. By that, I mean we're either the first, second, third, or fourth largest builder. So lots of good things.

Robert Schottenstein: Clearly a challenging market, as you know. © The Bulletproof Executive 2013 But it's not horrible. I think conditions are about a C to C plus, and they've been that way really for quite some time. But those of us that have been around, and M-I Homes will be celebrating its 50th year next year, we know what D's and F's look like, and we're by no means close to that. So I mean, the fact that we can post 14% income in this environment I think it's extraordinary. I think any double-digit pre-tax, I remember when Ivy years ago thought any builder that can get double-digit pre-tax income was hitting on all cylinders.

Um, we still have no interest in going any further west than we are. You didn't ask that, but I'll offer that up. Um, because we think we can grow a whole lot within the markets that we're in. And we have a leadership position in over half of our markets by that. I mean, we're either the first second, third or fourth, largest Builder, so, um, lots of good things. Clearly a challenging Market as you know, uh, you know, as well as anyone. Um, but if

Speaker Change: It's not horrible. I think conditions are about a c to C plus and they've been that way really for quite some time.

Speaker Change: But those of us that have been around and am I homes will be celebrating its 50th year next year. We know what D's and EPS look like, and we're by no means close to that.

Robert Schottenstein: The fact that we can do it right now in 2025, I think is, we're very proud of that. We've improved our cycle time, our customer service and home readiness scores are the highest in company history and they were always high. We hold ourselves to a very high standard when it comes to that. Those are all third-party tabulated scores. As we look at the business and think about where we are, we love our land position.

Robert Schottenstein: I saw a report that you put out that thought we had too many tertiary communities. I'm not sure I know which ones you're talking about. I'm winking a little as I'm saying that to you. I think our land position is exceptionally well-located. We're really excited about that. We have a lot of communities, notwithstanding the current conditions. that are performing at a very high level.

Speaker Change: So I mean the fact that we can post 14% income in this environment, I think is extraordinary. Uh I think any double digit pretext. I remember when Ivy years ago, thought any Builder that can get double digit pre-tax income was hit on all cylinders the fact that we can do it right now in 2025, I think is uh, we're very proud of that. We've improved our cycle, time our customer service and home Readiness scores of the highest in company history and they were always High. Um, we hold ourselves to a very high standard of when it comes to that, those are all third-party tabulated scores. So as we look at the business, um, you know, and and think about where we are, we love our land position. I saw a report that you put out that thought we had too many tertiary communities, I'm not sure. I know which ones you're talking about. Um, I'm winking a little as I'm saying that to you. I think our land position is exceptionally. Well located, really exciting.

Speaker Change: Excited about that.

Speaker Change: And we have a lot of communities. Notwithstanding the current conditions that are that are performing at a very high level.

Alan Ratner: Thank you all. I appreciate that big rundown, and I think the tertiary communities is more a function of the markets you're in as opposed to the sub-markets within those markets.

Speaker Change: Well, I appreciate that big rundown and and I think the tertiary communities is more function of the the markets you're in as opposed to the the submarkets within those markets. So

Buck Horne: I guess, you know, you kind of brought up some of the normalization and margins in Texas. I'm kind of curious, I know you don't guide on markets. Still generating a pretty healthy overall margin, but it is, you know, down a couple hundred basis points year on year.

Speaker Change: Um, I I would agree with you on the line position quality uh, for sure the um, I guess, you know, you kind of brought up some of the normalization and margins in Texas and just kind of curious. I know, you know, you don't guide on margin but

Robert Schottenstein: Curious as you think about the normalization on margin, what are the headwinds and tailwinds that are, you know, you're facing today as you look at over the next... I didn't pick up the last part of that question, what are the what that we're facing? The headwinds to margin, so like going forward, what could pressure margin lower, and then what, if anything, could be a tailwind to improve. Yeah, and, you know. What a great question. I don't know that anybody really knows the answer to that. I think margins are starting to level off for us. They may get a little bit lower.

Still generating a pretty healthy overall margin, but it is, you know, down a couple hundred basis points, a year on year. I'm just curious as you think about the normalization, on margin, what, what are the headwinds and, and Tailwinds, that that are, you know, you're facing today as you look at over the next year or so,

Speaker Change: The last part of that question. What are the what that we're facing the, the, the headwinds margin. So, like, going forward, what, what could pressure margin lower? And then, what if anything, you know, are could be a Tailwind to to improve margins.

Speaker Change: Yeah. And you know,

Robert Schottenstein: I don't see another 100, 200, 300 basis point drop. could happen. I think higher rates are going to be here for a little while, so we're going to continue to cut into margins by buying down mortgages. But I think that, you know, we were in the upper 20s, now we're in the mid-20s. I don't think we're going to see them get a whole lot lower. I don't. They may get down. I think it's 2423 or something like that. By the same token, they may level off where they are now. I sort of feel like we've sort of found a space, a place.

What a great question. Um, I don't know that anybody really knows the answer to that. I think margins are starting to level off for us. They may get a little bit lower. I don't see another 100 200, 300 basis points, drop

Speaker Change: Could Happen. Um uh I think higher rates are going to be here for a little while so we're going to continue to to cut into margins by buying down, you know, mortgages.

Speaker Change: but um,

Speaker Change: Uh but I I I I I think that uh you know, we we were in the upper 20s. Now we're in the mid 20s.

Speaker Change: I I don't think we're going to see them get a whole lot lower. I don't they make it down to you know 24 or 23 or something like that but I'm by the same token. They may level off where they are now. I I sort of feel like we've sort of found a space, a place.

Speaker Change: um,

Robert Schottenstein: I don't see rates getting higher over the next...

Robert Schottenstein: number of quarters anytime soon, in fact I think at some point we'll likely see them start to drop, that'll help margins a lot, but you know there's, I think there's some concern about impact of tariffs. That's a hard one to get your head around. I think we thought it would be worse than it is. So far, there's been little, if any, impact. We get about 20 to 30 percent of our lumber from Canada. This is not the full package, so how that all plays out there. I don't think it's a disaster, it'll be what it'll be and we'll figure it out, we'll navigate through it.

Speaker Change: uh, I don't see rates getting higher over the next.

Speaker Change: Number of quarters anytime soon and in fact I think at some point we'll likely to see them start to drop. That'll help margins a lot. Um but um,

Speaker Change: uh, you know, there's there's there's I think there's some concern about impact of tariffs

Buck Horne: You know, I think we're really close to about where we're likely to be here over the next Great. That's good to hear. Encouraging.

Speaker Change: Uh, that's a hard 1 to get your head around. I think we thought it would be worse than it is so far. There's been little if any impact. Um, we get about 20 to 30% of our lumber from Canada. Um, so sort of depends and it's not the full package. So how that all plays out there, you know, I, I don't think it's a disaster, it'll be what, it'll be and we'll figure it out. We'll navigate through it. But, um,

You know, I think we're really close to about where you know, where we're likely to be here over the next number of quarters.

And if I could just speak in one last one, just on the order, the comps by month, I thought it was interesting that your orders were down 12% in April and May and actually up 1% in June. I know there's a lot that can go into that with comps and everything, so just curious if you could expand on that for a minute.

Speaker Change: Great. Now that that's good to hear encouraging. And if I could just, uh, speak in 1 last 1 just on the order. Um, the comps by month that, um, I thought it was uh, interesting that your orders were down 12% in April and May and actually up 1% in June. I know there's a lot that can go into that, you know, with comps and everything. So just curious, if you could expand on that for a minute, did you do you guys do anything? Yeah, I, you know, it was it was interesting. Um, the uh, there was a noticeable uptick in traffic, in June and it but it didn't last the whole month. Um, but there was and I, you know, there was that period where we all sort of thought, rates are starting to drop.

Speaker Change: And it was interesting how uh, how that seemed to impact traffic and buyer sentiment for for a few hours. Um,

uh I think I think I saw where someone else commented on that in the last day or so, I can't remember, but, um, we saw that

um,

and, you know, we don't really comment on current conditions but, um,

Speaker Change: You know, I I think things are settling in a little bit here and um I think it's going to continue to be a fight 1 buyer at a time.

Speaker Change: But that's what we've been doing all year. Now, we've been doing that since last year at this time almost and uh,

Speaker Change: you know, I I think that

Speaker Change: sometime comps can be impacted when you open a brand new series of communities All In 1 month and all of a sudden it shoots that month up but period to period. I think our our sales I think our sales have held up well and I believe they'll continue to relative to to you know market conditions

Appreciate all the color guys. Uh, good luck and talk soon.

Speaker Change: Talk to you soon football season's on us all and get start getting excited.

Speaker Change: Thank you. The next question comes from

Can Center at Seaport research Partners, please go ahead.

Speaker Change: Good morning. Bob Phil everybody. Good morning. Um

Your the margin stability. You're talking about the interest rates. I'm not I don't think I'd be disagreeing with you but if you could operationally comment on the south which for you guys includes Texas, Florida a little more Texas than Florida. I think you said before. But the uh segment Origins for uh gross margins for 24 and 1 Q. Um,

Speaker Change: Can you kind of? And, and those have fallen sequentially, uh, from 4 Cub, but can you kind of talk about, you know, the spread there between the Florida and Texas margins? Um, give us a little

Speaker Change: Better sense of the business composition.

Speaker Change: Well.

just a little, um,

Speaker Change: look a year ago, uh, our margins in Texas were

Speaker Change: is in a bit of a reset and has been for

Speaker Change: over a year. But certainly Dallas and Houston, where we have big operations, there were some of the best margins in the company better than Florida. They're they're, they're coming down slightly now, but quite honestly, they're still very good. Otherwise we wouldn't on average be running. You know, nearly 25%.

Speaker Change: Um,

Speaker Change: right now, uh,

across the board.

Speaker Change: Margins in Texas are a little better than Florida.

Speaker Change: And 1 of the things that I've been focusing on with surprises is, do you have a census data saying there's all this new home Inventory for sale?

Speaker Change: You can exclude homes.

For sale, not started but like to make it comparable to the public. Are you seeing in your markets, the new home Inventory, you know, as high as the census is suggesting which is, you know, 30 plus percent above long-term averages or is it.

Speaker Change: Not necessarily. Um,

Speaker Change: The case, where you see such nominally, high inventory units, it's just more demand. That's affecting you guys.

Speaker Change: I'll I'll, I'll take a crack. I'll take a crack at that. I'm not sure that I um that I'm I'm looking at the same number that that you are but um um, as it relates to the to the large public Builders, um, all of us are

Producing a lot more spec homes, which go into that inventory number.

Then, we were 2 years ago, and the maybe even we were a year ago, so that's certainly in there. But because of the rate environment we're in, it's the the, the the, uh,

Speaker Change: The, uh, the decision to do more spec homes, at least for us has been critically important to our performance, because the the rate by Downs, which are so important in order to get people to buy a home. And to get to the closing table,

Uh it's that it's very difficult to produce. If not ridiculously expensive, a very long-term rate lock. So the the most attractive rate by Downs, the ones that most buyers are taking are available on homes that can close within 60 days. So if we don't have the inventory we don't have that to offer on the other hand uh the listings which are up in almost every Market that we're in in some cases. Considerably that includes existing homes too.

Speaker Change: and the 1 is Advantage um uh financially that we have and the other builders

Speaker Change: Uh, new home, builders have over existing homes, is our ability to offer rate buy Downs, which the average.

Speaker Change: Seller of an existing home is somewhat powerless to do. Uh they could do it but it's not as it's just not as they don't have the agility or the uh, or the internal operation to be able to generate that as quickly as we do. So I don't know if that really answers your question. Um, no it does I guess.

I asked different Builders this. But do you guys respond to the Census Data requests? Because I know many of the other public Builders actually don't respond to those. Do you guys provide data to the census?

Speaker Change: I don't know that we do, uh, if we do, I'm not aware of it. I'll have to check that. I, I actually don't think that.

Speaker Change: That data because it's so dated.

Speaker Change: And I'm not sure how reliable it is.

Speaker Change: Thank you very much.

Speaker Change: Thanks a lot for your question.

Thank you. The next question comes from Buckhorn at Raymond James, please go ahead.

Speaker Change: Hey thanks. Good morning. Congrats on a great quarter and a difficult environment. Um wanted to just thank you. Go back to

Speaker Change: Yeah. The uh, the the kind of the monthly progression of the, the order Trends. You guys were highlighting, others have kind of commented that uh incentives uh, in increased as the quarter progressed, or there was a need to kind of accelerate, some incentives, which is kind of going to lead to a little bit of further margin erosion into the third quarter. I'm just kind of wondering, you know, as you guys saw an uptick uh, in your orders in June. Was that was that due to a more heavy, um, decision on incentives or was that more of an organically driven demand lift?

Speaker Change: Cost.

Speaker Change: To buy the rate down to what we think we where we think we need to be on both the government and conventional side, where it costs, a little more, it costs a little less. You know, that may be a 100 basis points or 50 plus, or minus from time to time.

Speaker Change: But um,

Speaker Change: uh, we didn't, you know, we

Speaker Change: You know, some Builders are maybe more aggressive with their incentives. Other than rate buy Downs. I think most have been, um, which has been good to see, at least from my point of view. Um,

Speaker Change: you know, there's always someone that maybe doing something that

Maybe we don't think it makes that much sense because you can only sell the house 1 time and and you know lots are precious commodity if they're well. Okay but um

Speaker Change: uh,

Speaker Change: I don't know if you have anything to add, it's very hard to project. What margins are 1 of the things I mentioned was that in the second quarter we had about 36% of our closings.

Speaker Change: That were expect sales that were sold and closed in the quarter. Uh, we also have opened in the first half, 50 new stores,

Speaker Change: so that impacts uh you know what we're doing, you only get a chance to open 1 time the right way and

Speaker Change: Got to be very careful as far as pricing and incentives, especially with new communities, you know, in general are more expensive houses. Uh,

Speaker Change: Higher priced, you know, tend to hold up a little better these days as far as price and margin.

Speaker Change: Effects. There's an art to selling specs, you know today we're selling about 70% specs.

Speaker Change: And although in general specs, are at lower margins than to be built again, there is an art to, you know, what house, you're specking on which lot.

Speaker Change: And how do you manage incentive on specs? As Bob said, a big part of that is

Speaker Change: You know, there's a lot more efficiency in in buying down rates in a shorter period of time. So it's just very hard to predict what margins are. But you know, overall we feel really pretty good about you know, where we are.

Speaker Change: That's good. I appreciate the color. Um, and I guess, you know, thinking about the specs and and kind of your projected Community count growth in the back half on top of the, the new openings you've already achieved here. So I'm just wondering how you're thinking about the starts pace through through year end. Do you need to you need to accelerate more specs to hit your delivery goals or do you have enough product in in in process right now?

Speaker Change: You know, we're trying to manage a lot of things. I did mention that at mid year, we had 5,100 homes in the field versus 5,000. A year ago, our store count is up about 10%.

Speaker Change: So, you know, we do have more stores. We do have more people, we do have higher sgna. So, obviously, we need a certain amount of volume, but having said that, we're not trying to force it, you know. Land is a, a very

Speaker Change: Important commodity to us. It it takes a long time to get a locations and get those zoned approved. Get the specs in the models built. So again, we're trying to drive a certain amount of volume. But we're not trying to force volume like certain other builders are

Speaker Change: That's perfect. Thanks for the color, guys. And Bob, I really appreciate the bullishness on Florida in particular. And so, uh, it's good to hear the Tampa's finally seems to have turned the corner as well.

yeah, I mean, I look

I I don't know that I say it's completely turned the corner but you know, I think the steering wheel's heading in the right direction.

Speaker Change: Good. Good news. Appreciate the color.

Speaker Change: Thanks Bo.

Speaker Change: Thank you for the next question comes from. Jay McCandless at wedbush. Please go ahead.

Jay McCandless: Hey, good morning everyone. Um, hey Jenny. So Bob, I think you guys I'm good to talk to you. Um so I think Bob you talked about it in in 1 of in answering Allen's question, but at roughly 25 to 30%, Lumber coming from Canada, have y'all tried to to plan out or or map out what type of gross margin impact that might have? If if they do knock that terrified up to 34%?

Jay McCandless: Yeah, I think I said 20 to 30%, but Phil I I don't I, I think it's too early to know right now because I don't think we have any division.

Jay McCandless: The last couple of quarters have pretty much been flat.

Jay McCandless: And also even though land cost in general have continued to go up Land. Development cost is really kind of leveled off some

Jay McCandless: So from what we're seeing, we're not anticipating any type of snippet increase, you know, the second half of of this year and if anything does start changing like that. We think there's a couple of levers we can pull

Speaker Change: Right, that's good to know. Because I just kind of the second part of that question is, is what you talked about Bob was margins, trying to level out and we're, we're, we've been worried that if lumber prices, move up along with what sounds like a more aggressive promotional environment. At least for the next few months that that build a growth margin. Should could come under pressure, so, just trying to get a sense of where that's going. Um,

Speaker Change: The the second question I had is, if you look at the North and and Pi called it out yesterday, you guys pulled out the northern markets doing better. Is there any thought to maybe starting to expand again up north whether through m&a or or through? Um, adding some communities. How are you guys thinking about that, especially with some of the affordability, really, really good affordability in some of those Northern markets?

Speaker Change: Well.

Speaker Change: we, um,

We're glad that we're in really 3. Distinct geographies.

Uh maybe 4. Uh if you count Caroline is in Nashville is is sort of somewhere, mid mid but um Midwest Florida Texas.

Speaker Change: I I'm like very bullish about. All right now um uh I think the Midwest is holding up a little better. Candidly, we've got very big operation in Columbus.

Speaker Change: And in Chicago and in Minneapolis, and a rapidly growing been there a long time but a rapidly growing operation as well in Indianapolis. Um,

Speaker Change: Detroit since our Cincinnati operation is probably as strong as it's ever been. And we've been there since 1990, um,

Speaker Change: We we have a we have a lot invested in in our Midwest markets and we're prepared to invest more um every single 1 of those markets has a plan to grow over the next 1, 2 3, 4 years. And we don't think it's irrational. We think it's doable. Um,

At varying degrees. Every 1 of the cities has projected household formation growth.

Speaker Change: And right now I think no different than the rest of the country a shortage of homes and and a lot of buyers on the sidelines. So um,

Speaker Change: I don't want to overstate the, the, the, the, uh, robot the, our perceived bullishness. But we just think it's a really good area and we're going to, you know, we do a lot of volume in in the aggregate in the Midwest and we expect that volume to grow. You know, if you look at it in J overall, you know, in the 17000 units and we think that we can do that in a few of our divisions, as we look out the next couple of years. Again, assuming that things do get a little bit better which we think they will worst case.

Next year, we think we can do 1213 14,000 houses in our 17th markets. But again we want profitable growth.

Speaker Change: Uh, we like to control our most risky asset land.

Speaker Change: you know, we like to say within that 2, to 3 year, range of what we own and today, we own about 25,000 Lots

Speaker Change: Think we can continue to conservatively cautiously grow the business. We think we have the leadership teams and we think we're pretty good at land and product and those types of things.

Speaker Change: So, you know, we are getting the point where we're starting to get to the scale we need in Fort Meyers in Nashville, which we just opened a couple of years ago, but again, there's a number, you know, a builder, still in 2000, 3,000 units, even in some markets. And again, we're not doing a thousand in any market yet. So we think we're really positioned to, to grow a lot, but we want to grow smart, grow profitably, and also, uh, you know provide good returns.

Speaker Change: Or are you getting close to?

Maybe maybe with the Run rate is going to be at this higher level of operations. Or do you think there might be some more increases in sgna dollars going forward on a quarterly basis?

Speaker Change: I think there'll be some continued increase J. I mean we opened uh, 50 new stores. The first half.

Speaker Change: You know, last year, all year we opened 72, we expect in the second half to open a similar number as the first half.

Speaker Change: We talked about having, you know, Community count growth on average up like 5%.

Speaker Change: so we're probably going to continue to have higher headcount, you know, there are certain costs associated, you know, with more stores, so realistically,

You know we do think sgna dollars will probably be continued to grow up. Go up, as far as volume, you know again we do have a few more houses in the field than we had a year ago.

uh,

Speaker Change: Hopefully, you know, our our closing is, will continue to be a pretty strong.

Speaker Change: But that is based on you know, us having to continue selling a lot of specs at reasonable profit levels, so that's kind of what we're focused on.

Speaker Change: Okay, you got it. Um, and then the, the last question I have, I don't know if you guys have looked at this but a couple of Builders have actually disclosed where their average mortgage rate is in the backlog at this point, could you talk about that and maybe what your gross margin backlogs, or the gross margin and backlog looks like

Speaker Change: I mean the margin in the backlog, you know today, uh,

It's in a whole lot different than it was. You know, at the end of the first quarter, you know, maybe down 50 or 100 basis points is Bob said, you know, there continues to be margin pressure. There could be some more downward margins, you know. I don't think anything significant that just kind of depends as far as the, the, the mortgage rates, and those type of things that, that's not something that we've, you know, disclosed in the past.

Speaker Change: I don't think you can send this has changed a whole lot. You know, most Builders these days with the 30-year rate around 7.

Speaker Change: You know, most people are 150 250 basis points below that. Uh,

Speaker Change: Generate the traffic and the sales we want. So I don't think that's changed a whole lot.

Speaker Change: Great. Let's all head. Thanks guys.

Speaker Change: Okay, thanks.

Speaker Change: Phil Creek for closing comments.

Phil Creek: Thank you for joining us. Looking forward to talking to you next quarter.

Speaker Change: Ladies and gentlemen, this concludes your conference call.

Speaker Change: for today, we thank you for participating and we ask that you please disconnect your lines